SCT - Scott Tech

[BlackPeter]

A 5.8 M loan isn't exactly what I would called "fully state subsidised" or "tax payer funded".

Of course is the loan tax payer funded. Or do you think Shane is paying out of his own pockets?

I didn't say "fully tax payer funded", didn't I? However, they are now receiving hand outs given by people with very limited business acumen and a political (vs. a business agenda) using other peoples money.

What possibly could go wrong?

[Snoopy]

Wow, I have never seen an announcement quite like this! Scott's battling to fulfill their legal obligations!

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INTERIM DIRECTOR APPOINTMENT & INDEPENDENCE DETERMINATION

Interim Director Appointment

The Board has appointed Mr John Thorman as a Director effective from 1 May 2018. The Board has determined that Mr John Thorman is an Independent Director.

Following the retirement of Mr Mark Waller, the Board commenced a search for a suitable replacement Independent Director with the appropriate skills and experience. To date the search has been unsuccessful and to ensure the Company complies with the requirements for independent and New Zealand based Directors, this interim appointment has been made.

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The board has appointed a new director and gone on record as saying he is not up to the task! Extraordinary! I wonder if Mr Thorman will be adding 'incompetant interim director' to his resume?

After the above from 2018, I never thought there would be another director scandal at Scotts so soon. But read on.

Up for re-election this year is JBS representative Andre Nogueira. Nothing scandalous or unusual about that. Nogueira is the chief executive of JBS USA, the parent company of JBS Australia that holds the controlling stake in Scotts. This is great as it gives Scott's a direct line to the big boss in the US, and all the potential direct links to the meat processing industry in the USA: a very large pipeline of automation project potential. But having someone that high up in the hierarchy from so far away on the board means that he may not be able to attend all of Scott's board meetings, even if there were only six of them over FY2019. So it is fair enough to appoint an alternate director. JBS have done this by nominating John Berry, Head of Corporate and Regulatory affairs at JBS Australia as the alternate.

So how many board meetings did Andre Nogueira miss during the year? One, perhaps two? As AR2019 p16 shows, the actual answer is all of them! Nogueira never showed up at all, at any board meeting! How can we shareholders be asked to vote for a director that never showed up? I have been investing in sharemarkets for quite a while now, and I can honestly say I have never heard of a situation anything like this!

SNOOPY

[percy]

Sorry I can't explain it better than this.
You have God on the board.
God's word is law.
God's man has God's backing,so his words are God's.
God's law must not be broken.
Should any director fail to keep God's law,then he will rot in hell.[ie he will not receive God's vote when up for re-election].

[janner]

Sorry I can't explain it better than this.
You have God on the board.
God's word is law.
God's man has God's backing,so his words are God's.
God's law must not be broken.
Should any director fail to keep God's law,then he will rot in hell.[ie he will not receive God's vote when up for re-election].

So you are saying.. " Trust in God " ?.

[Snoopy]

Sorry I can't explain it better than this.

You have God on the board.
God's word is law.
God's man has God's backing,so his words are God's.
God's law must not be broken.
Should any director fail to keep God's law,then he will rot in hell.[ie he will not receive God's vote when up for re-election].

I get your point Percy, although the 'JBS Bible' has some interesting parables to relate:

https://www.thebureauinvestigates.co...over-the-world

I quote:

"When it comes to scandals, you can take your pick — during its rapid rise to become the world’s biggest meatpacker, JBS and its network of subsidiaries have been linked to allegations of high-level corruption, modern-day “slave labour” practices, illegal deforestation, animal welfare violations and major hygiene breaches."

I have a feeling this 'JBS god' you refer to Percy, might be batting for the other team? Whereas I don't expect JBS controlling shareholding to vote against him, that doesn't mean I can't!

SNOOPY

[Snoopy]

Scott’s vision is to be ‘the global innovator in automation’. Type that phrase into Google and the company that comes out first is FANUC, formed in 1956. FANUC is listed on the Japanese stock exchange. FANUC is an acronym for Factory Automatic Numerical Control.

Judged as world leader by analyzing patent data and related metrics in a proprietary methodology (for comparison Scott’s have 17 patents), FANUC Corporation, is the world's most diversified manufacturer of CNC Systems, Robots, and Machine Tools,

The criteria used to evaluate innovation performance of companies that invent on a significant scale are:

1/ Work on developments that are acknowledged as innovative by others around the world (patent approval success rate, patent influence in literature citations and overall patent volume).
2/ Inventions that are globally protected due to their importance (global reach of patent portfolio).

Thomson Reuters, judge of the 2011 Top 100 Global Innovator methodology, used these criteria to reach their conclusion rating FANUC as number one.

FANUC's innovative technology has contributed to a worldwide manufacturing revolution, which evolved from the automation of a single machine to the automation of entire production lines. Today, FANUC has more than 600 engineers working in R&D to provide the most reliable, efficient and innovative CNC systems available - ensuring the very lowest Total Cost of Ownership.

With 50 years of experience and more than 2,200,000 CNCs and 220,000 robots installed worldwide, FANUC is the undeniable global leader in CNC and robotics.

OK, so despite the bold statement, I think Scott Technology still has a way to go to fulfill their own vision. A differentiating point of Scotts from FANUC is that their headline robotics projects (meat industry and milking) have an ‘animal tissue interface’. That means the Scott robotics must develop a ‘feel’ and ‘room for dimensional tolerance’ that is not just a transplant of established industrial robotic technology available in Japan. The page 3 Scott AR2011 remark ‘we lead the world in our chosen markets’ is perhaps the more believable quote.

Eight years on how have Scott's progressed? Looking back at my previous comparison with 'FANUC', I feel as though it wasn't fair. Scott's are more into making turnkey project solutions rather than making all the individual units of hardware that supply that solution. Having said this, Scott's are capable of making the hardware. But if a robot is available off the shelf, there is no reason to reinvent the wheel.

Today typing 'industrial automation leader' into a search engine, what comes up?

1/ Omron Automation: Integrated Robotics: Design and install flexible manufacturing enabled by the seamless integration of robotics with advanced machine control. This includes Autonomous Intelligent Vehicles (has largest installed base in manufacturing), Robotic installations include Vision, Motion and Safety functions, and Automated Warehouses. Omron is headquartered in Japan and has over 35,000 employees, with nearly 24,000 of those in overseas subsidiaries. Omron's Industrial Automation division turnover comprises 46% of total company turnover of about $US8billion.

Since the 1990s, in the industrial area, Omron has focused on microelectronics. They strove to become number one worldwide in components and industry leader in the systems field. Omron was quick to detect the emerging need for programmable controllers with a fast processing speed to facilitate a trend away from 'mass production' of a single product, to high-mix, low-volume production runs. Omron, as a company, seems to be two orders of magnitude larger than Scotts.

2/ Comau: is an Italian domiciled multinational and a subsidiary of Fiat Chrysler Automobiles. A developer of Industry 4.0 (the trend towards automation and data exchange in manufacturing technologies and processes)-enabled systems, products and services. Comau is active in vehicle manufacturing, heavy industry, railway and renewable energy. Comau have 9,000 employees, operate 32 centres across 14 countries, including 5 'innovation centres' and 14 manufacturing plants. This company is an order of magnitude larger than Scotts but in a slightly different market space: Scott's is more orientated towards light manufacturing production lines and food industry processing lines.

3/ ABB (Asea Brown Boveri Ltd): ABB, a Swiss domiciled multinational conglomerate, operate a 'Machinery and Factory Automation' division, 'MF' (formerly a separate company B&R, founded by Erwin Bernecker and Josef Rainer). MF operate in more than 200 offices worldwide and have more than 3,400 employees. MF combines state-of-the-art technology with advanced engineering to provide customers in virtually every industry with complete solutions for machine and factory automation, motion control, Human Machine Interface and integrated safety technology. MF operate in the Automotive, Printing, Food & Beverage, Handling & Robotics., Oil & Gas and Metalworking industrial spaces. MF is a complementary business to another ABB business arm: the ABB Robotics Division that actually manufactures robots. The workforce at the ABB ML division is over four times larger than the 784 that are employed at Scott Technology at EOFY2019.

With no need to take my research further, it is clear that Scott is not in the top three companies that offer integrated manufacturing solutions in the industrial automation space. But neither do Scott choose to emulate the industry big boys. This is an analogous position to Scott subsidiary 'Rocklabs'. 'Rocklabs', build sample preparation equipment. They became a friend of the smaller laboratories. These were laboratories that had formerly had been forced to wait behind bigger customers to be supplied by bigger equipment manufacturers out of Germany and the United States. Like Rocklabs, the Industrial Automation part of Scott's go after the 'second tier', in this case the appliance manufacturing industry. Appliance manufacturing is a sector without the glamour of the larger automotive companies, but which nevertheless requires first class metal pressing and component handling skills to service it well.

In the 'secondary industry space', where Scotts choose to operate, they work with the biggest names in those industries. For appliance manufacturing lines this includes Haier, General Electric, Bosch and Electrolux. For meat carcase packaging, this includes the world's largest player JBS, a multinational beef, lamb and chicken processor who are also the majority Scott's shareholder. JBS is ultimately domiciled in Brazil.

Conclusion: Pass Test

SNOOPY

[Snoopy]

EPS figures over the years I pulled from Scott Tech's annual reports:

2009:1.1
2010:8.5
2011: 16.6
2012:16.7
2013:13.6
2014: 6.2
2015:13.8
2016:13.3
2017:13.2
2018: 14.3
2019: For first half of year is 6.6, last year it was 4.2 for first half of the year

Of course, we can only speculate what this years EPS would be so instead better to look at last years figures. 14.3 is more than 13.2. It's a marginal increase hence why I said weak EPS growth.

You'll need to forgive me as I'm definitely not a financial expert. Perhaps I have this wrong, and if so, please let me know. I'm not hugely knowledgeable on EPS and other financial measures of a company which is probably why I missed certain things with Scott Tech. I guess what confuses me is how revenue growth can be so strong while EPS growth isn't.

Thanks for your post Sanctus. I have pulled out what I consider the 'normalised' earnings per share over the last five years based on the number of Scott Technology shares on issue at the end of the financial year. This, no doubt, is why some of my eps figures are a little different to yours. The results are below:

FY2015: $4.803m / 45.474m = 10.6cps
FY2016: $8.929m / 74.681m = 12.0cps
FY2017: $8.959m / 74.681m = 12.0cps
FY2018: $10.205m / 75.903m = 13.4cps
FY2019: $9.464m / 77.545m = 12.2cps



Notes: NPAT normalisation calculations


FY2015: These adjustments may be found on p31, p32 of AR2015. I have:

a/ Subtracted the gain on sale of property plant and equipment ($0.280m)
b/ Added back fair value losses on derivatives held as fair value hedges ($0.449m).
c/ Subtracted foreign exchange gains ($1.538m) and add back unrealised fair value losses on fair value losses on foreign exchange derivatives ($0.108m) and subtracted fair value gains on firm commitments ($0.449m).

$6.113m-($0.280m)+ 0.72($0.449m-$1.538m+$0.108m-$0.449m)= $4.803m

FY2016: These adjustments may be found on p33 of AR2016. I have:

a/ Added back a loss on sale of property plant and equipment ($0.215m) and an impairment of net assets at QMT Machinery Technology Co. Ltd in China ($0.449m).
b/ Added back fair value losses on firm commitments ($1.051m).
c/ Added back foreign exchange losses ($0.027m) and unrealised fair value losses on fair value losses on foreign exchange derivatives ($0.155m) and subtracted fair value gains on derivatives held as fair value hedges ($1.051m).

$8.134m+($0.215m+$0.449m)+ 0.72($1.051m+$0.027m+$0.155m-$1.051m)= $8.929m

FY2017: These adjustments may be found on p30,31 of AR2017. I have:

a/ Subtracted a gain on sale of property plant and equipment ($0.073m)
b/ Added back fair value losses on firm commitments ($0.001m).
c/ Subtracted foreign exchange gains ($0.269m) and unrealised fair value gains on fair value gains on foreign exchange derivatives ($0.143m) and fair value gains held as fair value hedges ($0.001m).
d/ Subtracted a fair value gain on purchase of business "DC Ross" ($0.936m).

$10.265m-($0.073m+$0.936m)+ 0.72($0.001-$0.269m-$0.143m-$0.001m)= $8.959m

FY2018: Most of these adjustments may be found on p33 of AR2018. I have
a/ Added back the $0.021m loss on disposal of property plant and equipment.
b/ Added back in the unrealised loss on foreign exchange derivatives ($0.271m) and losses on derivatives used as fair value hedges ($1.579m) and the unrealised fair value losses on interest rate swap contracts ($0.043m) .
c/ Subtracted foreign exchange gains ($1.627m) and fair value gains on firm commitments ($1.579m).
d/ Added back $0.496m being due diligence and acquisition costs (including the $0.271m of due diligence services from the auditors)

$10.772m+($0.021m)+ 0.72($0.271m+$1.579m+$0.043m-$1.627m-$1.579m+$0.496m)= $10.205m

FY2019: Most of these adjustments may be found on p39 of AR2019. I have
a/ Subtracted the gain on sale of property plant and equipment of $0.106m and $0.237m (assumed non taxable)
b/ Added back in the unrealised loss on foreign exchange derivatives ($1.334m) and fair value losses on derivatives used as hedges ($1.216m) and the unrealised fair value losses on interest rate swap contracts ($0.346m) .
c/ Subtracted foreign exchange gains ($0.008m) and fair value gains on firm commitments ($1.216m) .

$8.604m-($0.106+$0.237m)+ 0.72($1.334m+$1.216m+$0.346m-$0.008m-$1.216m)= $9.464m

Conclusion: Pass Test

SNOOPY

[Snoopy]

FY2015: $4.803m / $50.618m = 9.5%
FY2016: $8.929m / $94.600m = 9.4%
FY2017: $8.959m / $97.156m = 9.2%
FY2018: $10.205m / $102.947m = 9.9%
FY2019: $9.464m / $111.817m = 8.5%

Conclusion: Fail Test (a comprehensive fail covering each of the last five years). The last time Scott's passed this test for a single year was back in 2010!

[percy]

FY2015: $5.363m / $50.618m = 10.6%
FY2016: $8.929m / $94.600m = 9.4%
FY2017: $8.959m / $97.156m = 9.2%
FY2018: $10.205m / $102.947m = 9.9%
FY2019: $9.429m / $111.817m = 8.4%

Conclusion: Fail Test (a comprehensive fail covering each of the last five years). The last time Scott's passed this test for a single year was back in 2010!

I concur.Fail.

[Snoopy]

They paid too much for the "goodwill"? Not the first company falling into that trap ...

Just so exciting for directors and CEO's to buy additional revenue. Great revenue pointers showing into exactly the right direction (top-right). Just don't talk about margins - I guess, who wants that much detail?

Here are the net profit margins for the last five years.

FY2015: $4.803m / $72.298m = 6.6%
FY2016: $8.929m / $112.044m = 8.0%
FY2017: $8.959m / $132.631m = 6.8%
FY2018: $10.205m / $181.779m = 5.6%
FY2019: $9.464m / $225.093m = 4.2%

Doing more and more business while making proportionately less profit over many years is not the way to go. The 'glitch' in FY2016 saw Scott's sell multiple repeat sales of automated lamb boning room units (the most profitable business that Scott's does) coupled with a good year at 'Rocklabs'. More of this will be required if there is to be any hope of restoring net profit margins to respectable levels.

Conclusion: Fail test

SNOOPY